IKEA SWOT Analysis – an overview

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. SWOT analysis is a strategic tool that helps businesses to analyse internal and external factors affecting the bottom line. Strengths and weaknesses are internal factors that can be influenced by the company. Opportunities and threats, on the other hand, are external factors that have to be taken into account in strategic decision-making by the senior management.  The following table illustrates IKEA SWOT analysis:

SWOT Analysis summary for IKEA

Strengths in IKEA SWOT Analysis

1. IKEA is an undisputed market leader in the global market of home improvement and furnishing. The Swedish furniture chain has 11 franchisees operating in more than 500 locations in 63 countries.[1] Additionally, the furniture retailer has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries.[2] The current leadership position of the company provides substantial advantages in terms of the economies of scale and at the same time creating a substantial entry barrier for new competitors. This is the most considerable strength for SWOT Analysis for IKEA

2. IKEA has developed the notion of democratic design which implies achieving an attractive form, quality, function and sustainability at a low price. The company attempts to integrate this notion to all of its products. Consistently increasing revenues of the business is an indication of successful outcome of such attempts. IKEA works with more than 1,000 designers globally through their suppliers who operate under democratic design culture and implement the concept in practice on a daily basis. Furthermore, the Swedish furniture chain has 18 in-house designers working with product development across the entire range[3]. The home improvement and furnishing chain also organizes annual democratic design days to build upon its success with positive implications on the bottom line.

3. IKEA has been able to deliver attractively designed products at low costs thanks to its product innovation capabilities. Innovations by IKEA play an instrumental role in terms of achieving democratic design as discussed above. The company has an innovation lab dubbed Space 10 in Copenhagen which conducts a wide range of futuristic projects such as 3D-printed meatballs, urban farming, energy-harvesting furniture and air-improving windows.

The list of innovative products introduced by IKEA include, but not limited to Vava lamps made of leaves, adhesive-free furnishings, severed seat storage, building block kitchens, flat-pack funerals etc.

However, the most important innovation introduced by IKEA is a process innovation of selling furniture in the flat pack form. Specifically, the world’s largest furniture retailer pioneered the practice of selling furniture in flat pack forms, where assembly is done by customers following clear instructions and illustrations provided by the company. This process innovation can be specified as the biggest factor that enabled IKEA to offer its products at the lowest prices.

4. IKEA generated operating income of EUR 25,6 billion during financial year 2021 an increase of 8,5% compared to the previous year[4]. The company has a healthy profit margin and strong cash reserves. Thanks to its solid financial position, the company is able to commit to considerable R&D expenses to further strengthen its presence in the global marketplace. Moreover, IKEA’s financial strengths can play an important role of cushion in times of recessions and decline in demand. Furthermore, in 2021 Interbrand and Forbes estimated IKEA brand value as USD 20,03 billion and USD 15,80 billion respectively. Strong brand value is a convincing indicator of a high level of customer loyalty and an overall strength of the business.

 5. IKEA offers about 12000 products, yet apart from food products its product portfolio is efficiently focused. Specifically, the company offers a wide range of furniture and home appliances products that share the common set of features such as innovative design, low price and a high level of practicality. Moreover, IKEA stays up-to-date with changes in customer needs and preferences. Highly focused pattern of IKEA product portfolio increases the effectiveness of brand identity with positive implications on consumer loyalty.

Weaknesses in IKEA SWOT Analysis

1. During FY2021 only 11,3% of global sales were generated in Asia region, at the same time when 71% of sales were generated in Europe’s saturating market[5] (see figure below). Taking into account rapidly expanding economies of Asian region and prolonging economic stagnation in Europe, it can be argued that IKEA’s current weak presence in Asian market might weaken the share of the business in the global marketplace in medium-term perspective. This is a major weakness within IKEA SWOT Analysis framework.

IKEA sales per region in FY21

2. IKEA brand image is yet to fully recover from a series of ethics-related incidents the company had to deal with during the past years. The most controversial incidents include using Photoshop to alter the images of women in its Saudi Arabia catalogue in September 2012. Revelations by Ernst & Young in the same year that IKEA did have businesses with suppliers based in communist East Germany 30 years ago that used forced labour to produce IKEA products also considerably weakened the brand image.

Furthermore, in February 2013 IKEA had to recall its meatballs after it was found that some of them contained traces of horse meat.[6] The global furniture retailer has also been accused of avoiding EUR 1 billion taxes according to a report the European parliament.[7] Most recently, The Swedish furniture chain had another blow to its brand image when the company was fined EUR 1 million over staff spying scandal, ex-France chief handed suspended sentence.[8] These and other similar incidents have weakened IKEA’s brand image to a considerable extent.

IKEA Group Report contains a full version of IKEA SWOT Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, organizational structure, business strategy and organizational culture. The report also comprises discussions of IKEA marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Inter IKEA Holding B.V. Annual report FY21

[2] Group Yearly Summary (2016) IKEA Group

[3] IKEA invests in doubling its in-house design department (2020) IKEA, Available at: https://about.ikea.com/en/newsroom/2020/03/11/ikea-invests-in-doubling-its-inhouse-design-department

[4] Inter IKEA Holding B.V. Annual report FY21

[5] Facts & Figures (2019) IKEA, Available at: https://www.ikea.com/ms/en_AU/about_ikea/facts_and_figures/

[6]Business Insider (2013) Available at: http://www.businessinsider.com/ikeas-reputation-has-taken-a-beating-2013

[7] Shen, L. (2016) “Ikea Has Been Accused of Avoiding 1 Billion Euros in Taxes” Fortune, Available at: http://fortune.com/2016/02/12/ikea-tax-avoidance/

[8] Ikea fined €1 million over staff spying scandal, ex-France chief handed suspended sentence (2021) France 24, Available at: https://www.france24.com/en/france/20210615-ikea-fined-%E2%82%AC1-million-ex-france-chief-handed-suspended-sentence-over-staff-spying-scandal